Money laundering can be defined as the conversion or laundering of money which is illegally obtained, so as to make it appear that it originated from lawful source. Money laundering is being employed by launderers worldwide so as to conceal their criminal activity like drugs or arms trafficking, terrorism, extortion etc…Money laundering happens in almost every country in the world and it is estimated that it could be between 2 to 5 percent of world’s GDP
There are 3 steps in which money laundering happens
1. Placement – It refers to physical disposal by money launderers of bulk cash proceeds which are derived from various illegal activities
2. Layering – It means separation of illegal proceeds by creating complex layers of financial transactions so as to conceal it from audit and government.
3. Integration – Under this the illegal money is injected back into the economy in such a way that they appear to be as normal business funds and all illegal money becomes legal.
Banks and financial institution are vulnerable to money laundering because of their business of accepting deposits. Across the world banks and financial institutions are liable for prosecution if their employees get involved in money laundering. Hence they have to constantly vigilant about accounts in which there are large cash deposits happening without any valid reason.